Quarterly / Earnings Reports | Second Quarter (2Q) Update

Bonterra Details Q2 2019 Results; Focuses on Debt Reduction

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   |    Wednesday,August 07,2019

Bonterra Energy Corp. reported its Q2 2019 results.

Throughout the second quarter of 2019, Bonterra continued to focus on both its debt reduction strategy and the further development of its high-quality, light oil-weighted assets that are concentrated in Alberta's Pembina and Willesden Green Cardium areas and feature a low annual production decline rate of approximately 20 percent.

At June 30, 2019, Bonterra successfully reduced its net debt by six percent, or $18.2 million, compared to December 31, 2018.

Through the first six months of 2019, Bonterra drilled 14 gross (13.1 net) horizontal wells, completed 13 gross (12.1 net) wells, and tied-in 13 gross (12.1 net) wells, supporting average second quarter production volumes of 12,674 BOE per day, a five percent increase over Q1 2019. The Company benefitted from an improved commodity price environment in Q2 and has applied strategies to manage cash flows in Q3 and Q4 2019 using physical delivery sales and risk management contracts, which will help to reduce the impact of highly volatile market pricing.

Q2 2019 Highlights

• Decreased net debt to $310.8 million as at June 30, 2019, representing a six percent, or $18.2 million reduction compared to $328.9 million at December 31, 2018, and a $16 million reduction compared to $326.7 at March 31, 2019. Bonterra's focus is to effectively manage and reduce its bank debt during this period of volatile commodity prices. 
  
  
• Generated funds flow of $26.2 million ($0.79 per share) in Q2 2019, a seven percent increase from $24.4 million ($0.73 per share) in Q1 2019, and lower than Q2 2018 funds flow of $37.6 million ($1.13 per share) due to lower commodity prices in Q2 of the current year. 
  
  
• Invested approximately $27.2 million in net capital expenditures for the six months ended June 30, 2019 to drill 14 gross (13.1 net) horizontal wells, complete 13 gross (12.1 net) wells and tie-in 13 gross (12.1 net) wells, with the remaining well being placed on production in July 2019. An additional $2.9 million was spent on related infrastructure costs, recompletions and other capital expenditures.
  
  
• Recorded net earnings of $23.1 million in the quarter, a 159 percent, or $14.2 million increase over the same period in 2018, with the change resulting primarily from a deferred income tax recovery related to the decrease in Alberta's corporate income tax rate.
  
  
• Averaged 12,674 BOE per day of production in Q2 2019, a quarter-over-quarter increase of 654 BOE per day, and approximately nine percent lower than the 13,946 BOE per day during the same period in 2018. The year-over-year reduction is due to reduced capital spending from using one drilling rig in 2019, compared to two drilling rigs for the comparable period in 2018, leading to fewer wells coming on line. The decrease was further inflated by shut-in production throughout the period because of a downstream third-party pipeline failure, early spring freeze offs, and pressure issues from new wells backing out existing wells. Many of these issues have been resolved with warmer weather, completion of third-party repairs and maintenance programs, and added infrastructure to boost compression. 
  
  
• Bonterra's field netbacks increased to $28.63 per BOE from $27.51 per BOE in Q1 2019 due to higher gross production revenue and reduced royalties.
  
  
• Declared and paid out $0.03 per share in cash dividends to shareholders in the second quarter, resulting in $0.06 per share in cash dividends for the six months ended June 30, 2019, and a payout ratio of five percent of funds flow.

Since the beginning of 2019, oil and gas producers have benefitted from increasing crude oil prices as the differential for Canadian sweet crude oil has narrowed significantly following the Government of Alberta's mandated curtailment which took effect in January 2019.  For the second quarter of 2019, Bonterra's average realized oil price was $71.27 per bbl, an increase of 10 percent over $64.87 per bbl realized in Q1 2019, and 83 percent higher than $38.96 per bbl in Q4 2018.  The Company will continue to regularly monitor commodity price changes and funds flow with the primary objective of reducing debt and as appropriate, adjusting capital expenditures and ensuring the dividend remains at a sustainable level. 

On May 21, 2019, the Company's syndicate of Canadian financial institutions renewed its borrowing base, and in concert with Bonterra's management and Board of Directors determined that amending the credit facilities would better reflect the Company's current operating needs and strategy.  The amended credit facilities of $340 million are comprised of a $300 million syndicated revolving credit facility and a $40 million non-syndicated revolving credit facility with the addition of an accordion feature to allow the Company to obtain future funding of up to $40 million for opportunities outside of normal operations, such as acquisitions.  At June 30, 2019, Bonterra was drawn $288.5 million on the Company's $340 million credit facility.

Outlook

Bonterra's original 2019 capital budget of $57 to $77 million remains intact and is expected to be near the low range of guidance.  The capital budget is designed to maintain an appropriate balance between funds flow and capital spending, with the ability to direct any excess cash to strengthening the balance sheet.  Capital will continue to be prudently allocated to those opportunities offering the highest returns.  Average annual production volumes in 2019 are forecast to be at the low end of the guidance range of 12,600 to 13,200 BOE per day, of which approximately 62 percent would be sweet crude oil.

Financial discipline and cost control continue to be priorities for Bonterra, and the Company will focus on further debt reduction to strengthen its balance sheet.  In the interests of mitigating volatility and to partially protect funds flow in Q3 and Q4 of 2019, the Company has entered into physical delivery sales and risk management contracts to receive an average MSW price on crude oil between C$65.00 and C$77.35 per bbl for a portion of production until December 31, 2019. Bonterra will continue to evaluate opportunities to secure prices for both WTI and light sweet oil differentials.